Quantitative Methods for Business

939 Pages·2012·17.42 MB·English

by  David R. Anderson

62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page i
David R. Anderson
University of Cincinnati
Dennis J. Sweeney
University of Cincinnati
Thomas A. Williams
Rochester Institute of Technology
Jeffrey D. Camm
University of Cincinnati
James J. Cochran
Louisianna Tech University
Michael J. Fry
University of Cincinnati
Jeffrey W. Ohlmann
University of Iowa
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page iv
This is an electronic version of the print textbook. Due to electronic rights restrictions,
some third party content may be suppressed. Editorial review has deemed that any suppressed
content does not materially affect the overall learning experience. The publisher reserves the right
to remove content from this title at any time if subsequent rights restrictions require it. For
valuable information on pricing, previous editions, changes to current editions, and alternate
formats, please visit www.cengage.com/highered to search by ISBN#, author, title, or keyword for
materials in your areas of interest.
62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page ii
Quantitative Methods for Business, © 2013, 2010South-Western, Cengage Learning
Twelfth Edition
ALL RIGHTS RESERVED. No part of this work covered by the copyright
David R. Anderson, Dennis J. Sweeney,
herein may be reproduced, transmitted, stored, or used in any form or
Thomas A. Williams, Jeffrey D. Camm,
by any means graphic, electronic, or mechanical, including but not
James J. Cochran, Michael J. Fry,
limited to photocopying, recording, scanning, digitizing, taping, web
Jeffrey W. Ohlmann
distribution, information networks, or information storage and
retrieval systems, except as permitted under Section 107 or 108of the
Vice President of Editorial, Business: Jack W.
1976United States Copyright Act, without the prior written permission
Calhoun
of the publisher.
Editor-in-Chief: Joe Sabatino
Senior Acquisitions Editor: Charles
For product information and technology assistance, contact us
McCormick, Jr.
at Cengage Learning Customer & Sales Support,
Developmental Editor: Maggie Kubale 1-800-354-9706
Editorial Assistant: Courtney Bavaro For permission to use material from this text or product,
submit all requests online at www.cengage.com/permissions
Marketing Manager: Adam Marsh
Further permissions questions can be emailed to
Content Project Manager: Emily Nesheim [email protected]
Media Editor: Chris Valentine
Manufacturing Planner: Ron J. Montgomery ExamView®is a registered trademark of eInstruction Corp. Windows
Senior Marketing Communications isa registered trademark of the Microsoft Corporation used herein
Manager: Libby Shipp under license. Macintosh and Power Macintosh are registered
trademarks of Apple Computer, Inc. used herein under license.
Production Service: MPS Limited, a
© 2013 Cengage Learning. All Rights Reserved.
Macmillan Company
Sr. Art Director: Stacy Jenkins Shirley
Cengage Learning WebTutor™ is a trademark of Cengage Learning.
Internal Designer: Michael Stratton/
cmiller design
Cover Designer: Craig Ramsdell Library of Congress Control Number: 2011936338
Cover Image: ©Tom Merton/Getty Images Package ISBN-13: 978-0-8400-6233-8
Package ISBN-10: 0-8400-6233-8
Rights Acquisitions Specialist:
Book only ISBN-13: 978-0-8400-6234-5
Amber Hosea
Book only ISBN-10: 0-8400-6234-6
South-Western
5191Natorp Boulevard
Mason, OH 45040
USA
Cengage Learning products are represented in Canada by
Nelson Education, Ltd.
For your course and learning solutions, visit
www.cengage.com
Purchase any of our products at your local college store or at our
preferred online store www.cengagebrain.com
Printed in the United States of America
1 2 3 4 5 6 7 15 14 13 12 11
62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page iii
To My Children
Krista, Justin, Mark, and Colleen
DRA
To My Children
Mark, Linda, Brad, Tim, Scott, and Lisa
DJS
To My Children
Cathy, David, and Kristin
TAW
To My Family
Karen, Jennifer, Stephanie, and Allison
JDC
To My Wife
Teresa
JJC
To My Family
Nicole and Ian
MJF
To My Family
Amie and Willa
JWO
This page intentionally left blank
62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page v
Brief Contents
Preface xvii
About the Authors xxiv
Chapter 1 Introduction 1
Chapter 2 Introduction to Probability 27
Chapter 3 Probability Distributions 62
Chapter 4 Decision Analysis 101
Chapter 5 Utility and Game Theory 157
Chapter 6 Time Series Analysis and Forecasting 188
Chapter 7 Introduction to Linear Programming 245
Chapter 8 Linear Programming: Sensitivity Analysis and
Interpretation of Solution 304
Chapter 9 Linear Programming Applications in Marketing,Finance,
and Operations Management 358
Chapter 10 Distribution and Network Models 419
Chapter 11 Integer Linear Programming 481
Chapter 12 Advanced Optimization Applications 530
Chapter 13 Project Scheduling: PERT/CPM 585
Chapter 14 Inventory Models 623
Chapter 15 Waiting Line Models 672
Chapter 16 Simulation 712
Chapter 17 Markov Processes 772
Appendix A Building Spreadsheet Models 798
Appendix B Binomial Probabilities 827
62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page vi
vi Brief Contents
Appendix C Poisson Probabilities 834
Appendix D Areas for the Standard Normal Distribution 840
Appendix E Values of e(cid:2)λ 842
Appendix F References and Bibliography 843
Appendix G Self-Test Solutions and Answers to Even-Numbered
Problems 845
Index 902
62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page vii
Contents
Preface xvii
About the Authors xxiv
Chapter 1 Introduction 1
1.1 Problem Solving and Decision Making 3
1.2 Quantitative Analysis and Decision Making 5
1.3 Quantitative Analysis 7
Model Development 7
Data Preparation 10
Model Solution 11
Report Generation 13
A Note Regarding Implementation 13
1.4 Models of Cost, Revenue, and Profit 14
Cost and Volume Models 14
Revenue and Volume Models 15
Profit and Volume Models 15
Breakeven Analysis 16
1.5 Quantitative Methods in Practice 17
Methods Used Most Frequently 17
Summary 19
Glossary 19
Problems 20
Case Problem Scheduling a Golf League 23
Appendix 1.1 Using Excel for Breakeven Analysis 23
Chapter 2 Introduction to Probability 27
2.1 Experiments and the Sample Space 29
2.2 Assigning Probabilities to Experimental Outcomes 31
Classical Method 31
Relative Frequency Method 32
Subjective Method 32
2.3 Events and Their Probabilities 33
2.4 Some Basic Relationships of Probability 34
Complement of an Event 34
Addition Law 35
Conditional Probability 38
Multiplication Law 42
2.5 Bayes’ Theorem 43
The Tabular Approach 46
2.6 Simpson’s Paradox 47
Summary 50
Glossary 50
62345_00_fm_pi-xxvi.qxd 12/28/11 11:02 AM Page viii
viii Contents
Problems 51
Case Problem Hamilton County Judges 59
Case Problem College Softball Recruiting 61
Chapter 3 Probability Distributions 62
3.1 Random Variables 64
3.2 Discrete Random Variables 65
Probability Distribution of a Discrete Random Variable 65
Expected Value 67
Variance 68
3.3 Binomial Probability Distribution 69
Nastke Clothing Store Problem 70
Expected Value and Variance for the Binomial Distribution 73
3.4 Poisson Probability Distribution 73
An Example Involving Time Intervals 74
An Example Involving Length or Distance Intervals 74
3.5 Continuous Random Variables 76
Applying the Uniform Distribution 76
Area as a Measure of Probability 77
3.6 Normal Probability Distribution 79
Standard Normal Distribution 80
Computing Probabilities for Any Normal Distribution 84
Grear Tire Company Problem 85
3.7 Exponential Probability Distribution 87
Computing Probabilities for the Exponential Distribution 87
Relationship Between the Poisson and Exponential Distributions 89
Summary 89
Glossary 90
Problems 91
Case Problem Specialty Toys 97
Appendix 3.1 Computing Discrete Probabilities with Excel 98
Appendix 3.2 Computing Probabilities for Continuous Distributions
with Excel 99
Chapter 4 Decision Analysis 101
4.1 Problem Formulation 103
Influence Diagrams 104
Payoff Tables 104
Decision Trees 105
4.2 Decision Making Without Probabilities 106
Optimistic Approach 106
Conservative Approach 107
Minimax Regret Approach 107
4.3 Decision Making With Probabilities 109
Expected Value of Perfect Information 112
4.4 Risk Analysis and Sensitivity Analysis 113
Risk Analysis 113
Sensitivity Analysis 114